Mortgage rates are great, but it's hard to get a loan

You can still get great mortgage rates -- the average 30-year, fixed-rate loan is 4.79% -- if you can qualify. But that hasn't seemed particularly easy to do.

And now there's new data that confirm just how hard it's been for people seeking new home loans.

The Wall Street Journal is reporting that more than a quarter of all mortgage loan applications were rejected in 2010, an increase from 2009.

That's still down from the peak rejection rate of 32.5% in 2007 at the end of the housing bubble.

From the Journal:

"Among the would-be borrowers having a harder time are those who have seen their incomes fall or interrupted by a period of unemployment, scenarios that have become increasingly common in recent years. Some self-employed applicants are also hitting barriers to loans -- hurdles they didn't face in the past.

"Lending standards are still tight in part because government entities Fannie Mae, Freddie Mac and the Federal Housing Administration, which collectively account for more than nine in 10 loans being made today, are under heavy pressure to avoid any losses."

Indeed, a recent survey of banks showed 40% tightened underwriting standards in 2010, even as other forms of credit became easier to obtain.

So what does this mean for someone seeking a home loan?

Expect a lot of scrutiny over your credit score.

If your credit score is below 700, you may have to go through a lot of extra red tape, providing documents on top of documents in order to get the approval you seek.

If you have a battered credit score, you can still seek out other options like an FHA loan.

Since a home purchase is likely the biggest purchase you will make in your lifetime, it makes sense that you should come at the process with a serious plan -- that means saving enough cash for a down payment (even if it is the 3.5% currently required by the FHA) and giving your credit-boosting efforts enough time to take effect.

The only way to prevent rejection is to be prepared. That means starting the credit repair process early, paying your bills on time and creating the reputation for being a responsible, financially stable, creditworthy applicant.